GE profit up 6% but margin concerns hit share prices

Boston: Diversified conglomerate General Electric Co yesterday reported third-quarter profit in line with Wall Street expectations, but its shares declined amid concerns about weak margins, particularly at its plastics and NBC Universal units.

GE, with operations from jet engines to commercial lending, said profit was up 6.1 per cent on 12.3 per cent revenue growth.

"You didn't get that revenue creating any leverage with the bottomline for some reason, so maybe that's a question mark," said Thomas Leritz, portfolio manager, Argent Capital Management, of Clayton, Missouri, who follows GE but does not own the shares. "If your revenues are better, why aren't you seeing it fall to the bottomline?"

GE shares fell 1.4 per cent to $35.72 in early trade on the New York Stock Exchange. The shares have underperformed this year and are up just 2.5 per cent, compared with an 11.4 per cent gain in the blue-chip Dow Jones industrial average, of which it is a component.

GE Chairman and Chief Executive Jeff Immelt told investors on a conference call that he believes the US economy is holding up, though higher interest rates are likely to take some toll on consumer spending.

"The economy is solid. It's really being fuelled by tremendous global infrastructure spending," Immelt said. "As interest rates go up, you are going to see some slowing, but on balance the US consumer is still healthy and still spending money."

The world's second largest company by market capitalisation reported net income of $4.96 billion, or 48 cents per share, compared with $4.68 billion, or 44 cents per share, a year earlier.

Earnings from continuing operations were 49 cents per share, matching the average Wall Street forecast.

Revenue rose 12.3 per cent to $40.86 billion. Analysts expected $39.89 billion, on average.

"Margin missed our expectations," JPMorgan Analyst Stephen Tusa wrote in a research note.

Segment profit at the infrastructure unit, which makes products from windmills to locomotives, was up 24 per cent to $2.34 billion, with revenue up 20 per cent to $12.1 billion.

Segment profit at NBC was off 10 per cent to $542 million, although revenue rose 20 per cent to $3.63 billion.

Weak margins at some television operations, and the cost of launching more movies than in the year-earlier quarter, offset the higher revenue, which was boosted by DVD releases, GE officials said.

Profit at the company's plastics business, part of its industrial segment, were off 23 per cent on one per cent sales growth as the cost of benzene a key raw material rose.

The slowing US housing market and volatile energy prices have raised investor concerns about the economy, and GE's size and diversity make it a bellwether for the economy. But some analysts have argued in recent weeks that the company's reach and international presence could help it weather a downturn.

During the quarter, Fairfield, Connecticut-based GE agreed to sell its slower growing advanced materials business in a $3.8 billion deal. Earlier this year it also spun off its insurance business, Genworth Financial Inc and GE Supply.

GE said it expects fourth-quarter earnings of 62 cents to 64 cents a share on sales of $44 billion. Analysts expect 64 cents a share on sales of $43.7 billion, according to Reuters Estimates.

GE predicted NBC would return to profit growth in the quarter.

GE is the world's second-largest company by market capitalisation, after oil company Exxon Mobil Corp.